Should traders and investors buy SoFi Technologies (NYSE:SOFI) stock? As a short-term trade, the shares may be profitable. This name, which merged with the SPAC known as Social Capital Hedosophia Holdings V, could attract enough buyers to bounce back towards its all time high of around $28 per share.
SoFi stock has strong potential and not just because its merger was completed sooner than expected.
In addition to the latter point, the reputation of its SPAC’s sponsor, Chamath Palihapitiya, is improving, as the pessimism towards his SPACs has started to fade. Add in SoFi’s strong recent results, and there’s plenty to justify a substantial, short-term boost from today’s prices to around $29.
Yet it may be tough for the shares to move much higher than that. SoFi’s long-term prospects may be promising, but it’s going to take several years for its positive catalysts to materialize.
This company, which began as a lender to students, could join the ranks of leading digital-first “financial supermarkets,” like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ).
Yet increased concerns about SoFi’s valuation could limit its ability to move above $30 per share. In other words, the shares may zoom back towards their highs and get stuck there for quite some time.
SOFI Stock and Chamath’s Comeback
Chamath Palihapitiya has had a rough past couple of months. At the start of 2021, he was calling himself the “next Warren Buffett.”
He’s still gunning for that nickname now, as shown by his recent letter to his investors. But, with several of the companies he brought to public markets like OpenDoor (NASDAQ:OPEN) and Clover (NASDAQ:CLOV) falling sharply over the past few months, investors have started to roll their eyes at his claims to be the “Oracle of Omaha” of the digital era.
Yet the “SPAC wipeout” that’s tarnished his reputation could end up in hindsight being more of a hiccup than the beginning of the end for Palihapitiya. The rebound of another one of his merger targets, Virgin Galactic (NYSE:SPCE), along with the close of SoFi’s merger, could mark the start of his comeback.
With his reputation bouncing back, expect investors’ confidence in his collection of SPACs and former SPACs to rise. Add in SoFi’s own strengths, and SOFI stock may be headed higher in the near-term.
However, what about the shares’ long-term outlook? SoFi’s recent results may indicate that it can deliver on its projections. But, with investors continuing to worry about the valuation of “story stocks,” it may take time for the shares to exceed the $30 level.
SoFi Could Hold Steady for Awhile
The crux of my last article on SOFI stock was that it may be too soon to start treating this as the next PayPal or Square. But, taking into account its recent earnings, I’ll concede that the company has produced enough tangible results to justify its hype. Specifically, with SoFi’s revenues and membership base growing at a triple-digit percentage clip, the company looks well-positioned to hit its 2025 adjusted EBITDA target of $1 billion. It may even end up hitting that milepost sooner than four years from now.
That helps to justify the current valuation for SOFI stock. Yet the specter of valuation contraction still hangs over tech growth stocks. Sure, fears of rising inflation and higher interest rates could be fading. That’s helping to spark the current rebound in many tech stocks. But inflation concerns are still not yet off the table.
Analysts at Deutsche Bank recently argued that, even if interest rates hold steady, tech names may still have a tough time, as investors opt to let them “grow into their valuations,” instead of considering them “buys at any price.” That is, even if the valuation of tech stocks doesn’t drop further, they may end up treading water.
The Bottom Line on SOFI Stock
As long as you buy the shares now, before they climb back to $25-$30 you can make a profit on SoFi. Beyond that price level, it’s going to be harder for investors to justify its valuation.
Between Palihapitiya’s improved reputation and SoFi’s own strong prospects, there’s plenty of reasons for the shares to return to their past highs. But, with the Street becoming more worried about the valuations of tech growth plays, investors hoping that SOFI stock will triple or quadruple may have to be patient.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
